Think-tank Embarks Scrutiny to Detect Commercial Farming Mess

The Ethiopian Research Development Institute (EDRI) headed by Yohannes Ayalew (PhD), former vice governor of the central bank and chief economist, was contracted by the Development Bank of Ethiopia (DBE) to conduct the study and develop the strategic plans.

The state policy think-tank launched research to assess the causes behind the non-fulfilments of rain-fed commercial farming. It will also develop a strategy to find a way out of the sector’s current slowdown.

The Ethiopian Research Development Institute (EDRI) headed by Yohannes Ayalew (PhD), former vice governor of the central bank and chief economist, was contracted by the Development Bank of Ethiopia (DBE) to conduct the study and develop the strategic plans. The bank holds over six billion Birr outstanding loans to over 400 commercial farmers. The farmers cultivate cotton, sesame, mung beans, and sunflower on a large scale mainly in Assosa, Gambella, Tigray, Amhara and Afar regional states.

The decision of contracting EDRI for the study was passed by the board of the bank chaired by Shiferaw Shigute, former minister of Agriculture & Livestock and who was appointed by President Mulatu Teshome (PhD) as ambassador last Friday.

Six months ago the bank had ceased providing loans to new rain-fed commercial farm projects. While halting financing to new rain-fed commercial banks, DBE announced that it is holding disbursing fresh loans to rain-fed farms as it was its loan portfolio.

The study is intended to identify whether financing commercial farms is viable and whether it should be stopped and discontinue financing such projects. It will also consider options to bring in commercial banks, according to a source at the EDRI.

“After studying all these issues the centre will develop strategies on how to solve the bottlenecks in the sector,” said this source.

A year ago, DBE, which is concerned with the non-performing loans (NPL) ratio of the sector, formed a committee to assess problems associated with rain-fed commercial farmers. The Committee evaluated the sector by collecting data from districts of the Bank and after conducting farm visits. After the study, the committee submitted its findings and recommendations to the management and board of the Bank, which later turned out to be the reason for halting financing for these projects.

It was not the first time that DBE ceased loans to commercial farmers. In 2015, it suspended loan following a controversy involving financial maladministration in the Gambella Region. But the bank resumed it a year later.

By the beginning of the just-ended fiscal year, Teklewold Atnafu, former governor of the National Bank of Ethiopia, reported to Parliament’s Budget & Finance Standing Committee, that the commercial farms were the major sources of bad loan rate surges at the policy bank. During the first three quarters of the just-ended fiscal year, DBE’s NPLs stood at 20.54pc.

Though the launch the study is good news for Yemane Seifu, president of the Gambella Agricultural Investors’ Association Union that has 192 members, he still has a concern with the findings of the research and the decisions that follow.

“The bank shouldn’t have suspended availing fresh loans,” he said, “it can proceed with the investigation while providing loans carefully.”

He also claims that the Bank’s action put over 90pc of the Association member farmers’ loans into the NPL category.

“Access to finance, shortage of seedlings and chemicals coupled with market problems are giving us a tough time,” said Yemane.

Though the bank has suspended pledging fresh loans for new rain-fed farms, it is disbursing loans for existing projects based on their performances, according to Kifle Hayleyesus, communications director at the DBE.